3 Reasons to Buy Docusign Stock Like There's No Tomorrow

It's been a long road for Docusign (NASDAQ: DOCU) as it attempts to reset expectations following its share price collapse between 2021 and 2022. While the stock is down more than 80% from its pandemic-era heights, the latest trends from the e-signatures pioneer are working to rebuild market confidence.

Indeed, profitable growth powered by new artificial intelligence (AI) tools integrated across the platform highlights a positive outlook for the company. Here are three reasons I believe shares of Docusign are a buy today.

1. Leveraging core strengths with artificial intelligence

Docusign didn't invent the e-signature, but the company is recognized for revolutionizing the technology over the last two decades, which has been transformative for various industries.

That history of innovation continues through the recent launch of Docusign's Intelligent Agreement Management (IAM) platform as a suite of solutions across the entire contracts workflow. Beyond capturing e-signatures, businesses can create forms and templates, verify identification, and manage the entire document lifecycle in a unified ecosystem.

Maybe the most exciting development for Docusign this year is the introduction of generative AI within the IAM platform, aimed at simplifying processes and enhancing the product value proposition. One use case example is how the Docusign Navigator can quickly scan and translate an agreement into structured analytics for actionable insight.

For businesses dealing with hundreds or potentially tens of thousands of contracts, the productivity benefits should sell themselves. The company believes these areas represent a $50 billion addressable market in what may still be the early stages of a significant growth opportunity.

Image source: Docusign.

2. Solid fundamentals support a positive outlook

In the first quarter (for the period ended April 30), Docusign reported $710 million in revenue, up 7% year over year. Within that figure, international revenue was even stronger, up 17% from the prior-year quarter, and now contributing 28% of the total. Management is citing success in expanding existing customer relationships as well as onboarding new accounts.

A major theme for the company has been its efforts at generating financial efficiencies and lifting margins. Steps to streamline the business, including a reduction in headcount, helped the non- GAAP operating margin reach 28% in Q1, compared to 25% in the prior quarter. Q1 non-GAAP earnings per share (EPS) of $0.82 were up from $0.72 in the period last year.

On this point, Docusign ended the quarter with $1.2 billion in cash and cash equivalents against zero long-term financial debt. That strong balance sheet and underlying positive free cash flow are allowing the company to move forward with a $1 billion increase to its outstanding share repurchasing authorization. Considering the stock's $11 billion market value, the implied buyback yield is near 10%.

3. Docusign trades at an attractive valuation

In terms of guidance, Docusign expects full-year revenue growth of around 6% with a target for the non-GAAP operating margin between 26.5% and 28%, marking an improvement compared to the 26% result last year. While that top-line momentum isn't necessarily exceptional, what's important is that the trends are moving in the right direction.

In my view, the attraction of Docusign as an investment comes down to its compelling value, with shares currently trading at 17.6 times the Wall Street full-year consensus EPS of $3.25. For context, this is a stock that traded with a forward price-to-earnings (P/E) ratio near 50 about two years ago.

Simply put, the major sell-off in shares from the highs has brought the valuation back down to Earth, with an argument to be made that Docusign's fundamentals and outlook are stronger than ever.

DOCU PE Ratio (Forward) data by YCharts.

Is now the time to buy Docusign stock?

I'm very bullish on Docusign's long-term prospects and its ability to execute its global expansion strategy. The possibility that financial results over the next few quarters could outperform expectations could be a catalyst for the stock to reprice higher.

Outside of a major deterioration to the macro backdrop, I see shares of Docusign rallying over the next year. The stock deserves consideration as a buy for investors within a diversified portfolio.

Dan Victor has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Docusign. The Motley Fool has a disclosure policy .